Corporate taxation: financing state and welfare

Trade unions in Sweden want a more equitable tax system, where companies compete on quality, not tax minimisation.

Late last month, the Swedish federation of trade unions SACO hosted a seminar on global minimum taxes for European Union multinationals, in collaboration with the recently established Network of Unions for Tax Justice and the EU Tax Observatory. Amid the Swedish EU presidency influential policy-makers, including Sweden’s former finance minister as well as the head of the finance committee in the parliament, discussed with the unions ways forward on corporate-tax reform—in particular how Sweden intended to implement the recently adopted EU directive on a global minimum tax.

With more than 140 participants, the seminar was unusual by Sweden’s standards: tax debates tend to be low-key, generally focused on resisting co-ordination initiatives. Sweden usually expresses concerns about EU tax proposals, obstructing progress in a decision-making process which still requires unanimous agreement among member states.

‘National sovereignty’

In Sweden we often hear that EU proposals for corporate-tax reform would damage ‘national sovereignty’. It is also said that, as a capital-exporting economy, Sweden has a lot to lose from taxing its ‘national champions’.

But the sovereignty argument is deeply misleading. Lack of international co-operation has favoured tax havens within and outwith the EU. In its absence, countries compete against each other to attract capital with tax incentives and low rates.

Sweden has engaged in this ‘race to the bottom’, with the corporate-tax rate dropping from 28 to 20 per cent in a decade. The loss of revenues stemming from this collective-action dilemma costs workers and their communities a lot.

As highlighted in the SACO study ‘New times, new taxes’, between two and ten trillion Swedish krona (€2 to €8 billion) is lost every year globally to corporate-tax abuse. Sweden alone loses SEK130 billion (€11 billion) annually, mostly to Ireland, Luxembourg and the Netherlands. These almost unimaginable sums lost are desperately needed to maintain the social contract—given the expenses and debt incurred to deal with the pandemic, the energy crisis, the cost of living and the green transition.

Draining liquidity

Corporate-tax avoidance hurts workers in many ways. Through complex mechanisms, companies drain liquidity from healthy subsidiaries to tax havens, leaving little left for trade unions to bargain over. Wages are thereby kept artificially low and working conditions precarious. Management is inaccessible behind a maze of shell and letter-box entities.

So trade unions are pursuing a co-ordinated agenda through the European Trade Union Confederation and the Network of Unions for Tax Justice. This gathers more than 30 trade unions across four continents, working together to convince their governments to engage in a virtuous race to the top, challenging austerity and ensuring a fairer sharing of corporate wealth with labour.

The adoption by the EU of a global minimum tax last December was a historic development. For the first time, governments in Europe and beyond have recognised that tax competition is not sustainable. The directive, drawn up in collaboration with the Organisation for Economic Co-operation and Development, means multinational enterprises must be taxed at a minimum of 15 per cent.

Excessively complex

Assessing how the EU global minimum tax will affect revenues in individual countries is an uncertain exercise. We do not yet know how businesses will react. The EU framework is however excessively complex and leaves many opportunities for tax havens to exploit its weaknesses through creative transposition into their domestic systems.

Among others, weaknesses include a narrow scope of application, an amputated tax base and a modest minimum rate. Countries in the global south are unlikely to sign on as the design of the rules puts them at a great disadvantage, compared with their OECD counterparts.

These concessions adversely affect the revenue-raising potential. In Sweden, a recent official report contrasted the administrative cost of the directive with its low domestic revenue impact. Policy-makers must however not be led to believe that global minimum taxes are not a worthwhile exercise: the directive must be strengthened, not cast aside.

Ambitious action

A 25 per cent effective corporate-tax rate is a longstanding labour demand to curb tax competition and raise more revenue more progressively. Rather than looking at ways to undercut their neighbours through poor and porous implementation, EU member states must aim at ambitious transposition of the directive, as well as complementary measures to offset its weaknesses. Ultimately, far-reaching national action will be decisive in building consensus for stronger multilateral reform.

The SACO seminar offered a glimmer of hope on the Swedish corporate-tax agenda. The representatives from the two major Swedish parties agreed that the political debate had shifted on this issue and that the pressure should be sustained for further progress.

Beyond the assertive rhetoric, the proof of the pudding is in the eating. Sweden has an important role to play and still months left to use its EU presidency to show the way forward to other member states. The seminar and union demands can hopefully play a pivotal role in its domestic debate and help Sweden stop acting as a messenger boy for tax havens when these issues come to the Council of the EU.

Simon Vinge

Simon Vinge is chief economist at Akademikerförbundet SSR in Sweden.

Séverine Picard

Séverine Picard is head of Progressive Policies, a socially minded consultancy.